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UK Banks Warned To Boost Lending Or Break Up Is Possible

UK Chancellor of the Exchequer George Osborne has demanded that banks increase lending from the 2010 figure of £180 billion to over £200 billion. Discussions between UK banks and the Treasury regarding an additional £10 billion in lending recently stalled. This lead to a threat from ministers to break up the financial institutions.

In addition to the increase in lending, Mr. Osborne called on bankers to decrease their bonuses. Some experts believe that the Treasury will receive only half the increase it desires, resulting in credit-starved homebuyers and businesses. Though the talks stalled, officials say a deal is “very possible” in the coming days. They say they are striving for the correct figure rather than being too hasty.

Officials prefer not to craft a deal that will later collapse. On Sunday night, the Treasury turned up the pressure, saying that unless cooperation is achieved, the government is ready to break up large

banks. In a move to shame them into compliance, ministers are also adding potential liabilities of state-owned institutions Lloyds and RBS to the national debt calculation.

As it stands, Britain has a national debt of £1 trillion. When the overall potential liability of these state banks is added, the national debt will rise to £2.5 trillion. This blatant reminder of the enormity of the British financial disaster should place pressure on bank heads to justify any reluctance to increase lending and slash bonuses. The new bonus figures are scheduled to be announced with any deals.

If a deal is not struck, Mr. Osborne’s reputation may be at stake. He has the support of Banking Commission Chairman Sir John Vickers, who is exploring a separation of the High Street banks and the “casino” investment arms that are believed responsible for the financial disaster. The goal is to protect the economy and taxpayers of Britain from bearing the liability for the situation.